Goldman Sachs Increases Italian Debt Exposure

Goldman Sachs Group Inc. bought $2.3 billion worth of Italian sovereign debt during the first quarter, increasing its overall market exposure to troubled European countries, even as it reduced exposure to other risky nations, including Greece.

The Wall Street bank had $2.7 billion worth of bonds, equities, credit derivatives and other securities pegged to Greece, Ireland, Italy, Portugal and Spain as of March 31, according to Goldman's quarterly filing with the U.S. Securities and Exchange Commission on Thursday.

That compares with market exposure of $580 million to those countries at year-end.

Most of the increase came from Goldman's purchase of Italian sovereign bonds. Its total positions in Italian securities accounted for $2.4 billion of market exposure to the five so-called "peripheral" eurozone nations. At year-end, its exposure to Italy was nil.

During the quarter, Goldman reduced exposure to Greece and Ireland by $126 million and $478 million, respectively. The bank also added to its short position on Portugal and reduced its short position on Spain, which came in the form of credit derivatives against non-sovereign debt in those countries.

Goldman also increased estimates for the amount of additional collateral or termination payments for derivatives contracts that the bank would have to pay out if it were downgraded by Moody's Corp, even though Goldman reduced exposure to such contracts by $7.7 billion, or 22 percent.

In the event of a one-notch downgrade, Goldman would need to post another $1.3 billion worth of collateral or termination payments, up 2 percent from the previous quarter. In the event of a two-notch downgrade, Goldman would need another $2.2 billion of collateral or termination payments, up 1 percent.

Moody's put 17 global financial institutions, including Goldman and its main rival, Morgan Stanley, on review for possible downgrades in February.

Goldman said it lost money on just one out of 62 trading days during the first quarter and said net revenue exceeded $100 million on 24 trading days. In the year-ago period, Goldman lost money on one day, but took in net revenue above $100 million on 32 trading days.